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Non-performing loans and financial development: new evidence

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  • Peterson K. Ozili

Abstract

Purpose - This paper aims to investigate the influence of financial development on non-performing loans (NPL). Design/methodology/approach - The model used in this study follows the NPL model of Louziset al.(2012), Ozili (2015) and Becket al.(2015). Findings - The findings indicate that financial development, measured as foreign bank presence and financial intermediation, are positively associated with NPLs. Also, bank efficiency, loan loss coverage ratio, competition and banking system stability are inversely associated with NPLs, while NPLs are positively associated with banking crises and bank concentration. In the regional analysis, NPLs are negatively associated with regulatory capital and bank liquidity, implying that banking sectors with greater regulatory capital and liquidity experience fewer NPLs. Practical implications - National bank regulators/supervisor should not only consider the role that financial development structures play in influencing aggregate NPLs but also ensure that thorough supervision of the lending practices of banks is in place as well as the active monitoring of the financial intermediation process in the country. Originality/value - The study is the first to use a global sample to examine the direct relationship between NPL and financial development.

Suggested Citation

  • Peterson K. Ozili, 2019. "Non-performing loans and financial development: new evidence," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 20(1), pages 59-81, January.
    • Handle: RePEc:eme:jrfpps:jrf-07-2017-0112
    DOI: 10.1108/JRF-07-2017-0112
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    More about this item

    Keywords

    Foreign banks; Credit risk; Financial intermediation; Financial development; Non-performing loans; Asset quality; G28; G32; F34; O16; E44; G01; G21;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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